A Blessing in Disguise

Is there a bright side to higher food prices? It’s a question I posed in an earlier post and which I answered in an embarrassingly Pollyannaish way – yes, I said, higher food prices make us more appreciative of the land and long-forgotten farms and farmers.

It turns out that today’s high food prices come with a much stronger silver lining, particularly for small farmers in the world’s poorest countries.According to Sandra Polaski, one of the speakers at the U.N. roundtable discussion I’ve been blogging about, the world’s poorest people can benefit from high food prices.It’s counterintuitive, I know, but I’ll try to explain.

First, let’s start with poor farmers who are net sellers of food.It’s easy to understand how high food prices would benefit them:the food they produce is in demand and will command top dollar.But what if they’re farmers who buy more food than they sell?What if they’re not farmers?How can high food prices possibly benefit them?

Polaski explained that according to an upcoming World Bank study, rising food prices tend to transfer income from richer to poorer households.Huh?How does that happen?It happens because net food buying rural households derive half of their income either directly or indirectly from agriculture.And they don’t spend a great deal of their money on food – less than 10 percent according to the study.

Polaski also cited studies in India and China, where 54 percent of the world’s poor live.A recent study by the Carnegie Endowment showed that an increase in the price of rice in India would benefit most poor households, with the poorest, most disadvantaged groups seeing the largest gains.A decrease in rice prices, on the other hand, would lead to a loss of income for 78 percent of the households.

An increase in rice prices, said Polaski, was “poverty-improving,” while a decrease was “poverty-increasing.”

Several studies of Chinese households showed a similar pattern:rising grain prices would reduce poverty in China, while falling prices would increase poverty.Two other studies looked at groups of developing countries that did not include China and India.One study found that higher food prices would reduce poverty in nine of the 15 countries.Another – an obvious outlier – found that it would increase poverty in seven out of nine.

Polaski noted that the impact of higher food prices will differ among countries and among households within countries.But for some of the world’s poorest countries and households, the curse of higher food prices could be a blessing in disguise.